Sunbeam-Oster Co., Inc. Group Benefits Plan for Salaried and Non-Bargaining Hourly Employees v. Whitehurst, SUNBEAM-OSTER

• Decision Date: 19 December 1996
• Docket Number: NON-BARGAINING,No. 95-31269,SUNBEAM-OSTER,N-BARGAINING,95-31269
• Citation: 102 F.3d 1368
• Parties: TheCOMPANY, INC. GROUP BENEFITS PLAN FOR SALARIED ANDHOURLY EMPLOYEES, Plaintiff-Appellant, v. Leonard WHITEHURST, Jr., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1368

102 F.3d 1368

The SUNBEAM-OSTER COMPANY, INC. GROUP BENEFITS PLAN FOR SALARIED AND NON-BARGAINING HOURLY EMPLOYEES Plaintiff-Appellant, v. Leonard WHITEHURST, Jr., Defendant-Appellee.

No. 95-31269.

United States Court of Appeals Fifth Circuit.

Dec. 19, 1996.

Mark Edward Seamster, Seale, Macaluso, Daigle & Ross, Hammond, LA, for Sunbeam-Oster Company, Inc., plaintiff-appellant.

Michael J. Mestayer, Leger & Mestayer, New Orleans, LA, for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before KING, SMITH and WIENER, Circuit Judges.

WIENER, Circuit Judge:

Resolution of the principal issues presented by this appeal requires the construction and application of reimbursement and subrogation provisions of the Plaintiff-Appellant Sunbeam-Oster Company, Inc. Group Benefits Plan for Salaried and Non Bargaining Hourly Employees (the Plan), a self-funded welfare benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). ¹ This litigation was spawned when Defendant-Appellee Leonard Whitehurst, Jr.--a plan beneficiary who had been seriously injured in a motor vehicle accident unrelated to his employment and whose resulting six-figure medical expenses were paid by the Plan--refused to reimburse the Plan for payments it made on his behalf, even though he had recovered more than sufficient funds with which to do so from a settlement with third parties. For the reasons hereafter explained, we reverse the district court's judgment favorable to Whitehurst and hold that the plain language of the Plan was neither silent nor ambiguous but, at least by unmistakable implication, embodied a "first dollar" priority right in favor of the Plan (hereafter "Plan Priority") to be reimbursed from the proceeds of a beneficiary's recovery.

I FACTS AND PROCEEDINGS

A. The Accident; The Plan; Whitehurst's Lawsuit

Whitehurst, a long-time employee of Sunbeam-Oster Company, Inc. (Sunbeam), was Whitehurst was covered by the Plan as a dependent under a family coverage arrangement in which his wife, also a Sunbeam employee, was the participant and paid the premiums. As a covered dependant he was a beneficiary of the Plan and thus was entitled to have his medical bills--totaling approximately $137,000 as of the time briefs were filed in this appeal--paid by the Plan. The Plan was a self-funded, participant-contributory, employee welfare benefits plan governed by ERISA, and provided health and medical benefits on a voluntary basis to thousands of employees of Sunbeam and their designated beneficiaries. ² Participants were required to make contributions to the Plan, but as their total contributions were insufficient to pay the aggregate costs of covered services, claims were largely paid from the general assets of Sunbeam. Blue Cross and Blue Shield of Mississippi, Inc. (Blue Cross) served as the "third party administrator" of the Plan. In that capacity, it processed the claims of Plan participants and their beneficiaries.

severely injured in a non-work related accident when an eighteen-wheel tractor/trailer (the rig) crossed the centerline of a rural Louisiana highway and collided with his car. Whitehurst's extreme injuries necessitated extensive surgery, hospitalization, and rehabilitation.

After his accident, Whitehurst hired a lawyer and, together with his wife and minor child, both of whom had witnessed the critically injured Whitehurst being pried from his car at the scene of the accident, filed a state court negligence suit against the driver of the rig, its owner, and the owner's insurer. They asserted claims for Whitehurst's injuries and his wife and son's loss of consortium. ³

The Whitehursts' attorney finally informed the Plan of this lawsuit when settlement appeared imminent, and requested itemized medical expense statements so that he might "protect [the Plan's] interests." ⁴ Partly in reliance on this communication from Whitehurst's counsel, the Plan chose not to intervene in the suit or participate in any settlement negotiations.

The Whitehursts ultimately settled all their tort claims arising from the accident jointly for $500,000, the limit of the rig owner's insurance policy, plus $9,000 in property damages. The settlement agreement neither apportioned the recovery among the plaintiffs nor itemized the $500,000 lump sum as to medical expenses or, for that matter, any other category of damages. In that agreement, however, the Whitehursts expressly absolved the defendants and agreed to hold them harmless from liability for "all medical expenses, hospital expenses and liens incurred by and in connection with any medical treatment rendered to [Whitehurst]."

B. The Reimbursement Provisions of the Plan; the Plan's Lawsuit

In compliance with requirements under ERISA, Sunbeam had filed the original plan document for the Plan with the Department of Labor about two years before Whitehurst's accident. As is typically the case with ERISA self-funded welfare benefit plans, the document filed with the Department was not a formal trust indenture (here, there was none), but rather an employee benefits handbook, a "Summary Plan Description" (SPD) in ERISA parlance. As discussed more fully below, ERISA insists that the SPD be couched in ordinary conversational terms, understandable by the average reasonable employee, and not in verbose "legalese" or "insurance speak." ⁵ The charges for which payment or reimbursement is received by or for the individual as a result of a legal action or settlement (unless you [the participant or beneficiary] sign the necessary documents authorizing the deduction of any overpayment from your benefit, wage and pension payments).

health care benefits section of the Plan's SPD contained a number of "General Exclusions," one of which was for:

That section of the SPD also contained a subsection titled "Subrogation," which, stated in full, provided:

Subrogation allows the Plan to recover duplicate benefit amounts. For example, if you are injured by another individual and incur $1000 in covered expenses--and you sue that individual and recover $1000--the Sunbeam-Oster Plan does not pay benefits for those expenses. If the plan has already paid benefits, it has the right to recover payment from you. This also applies to benefits paid through the Plan's COB [Coordination of Benefit] feature.

The subrogation and COB features only apply for group insurance plans (not to individually purchased coverage)--including automobile no-fault programs.

Several months prior to Whitehurst's accident, the Plan issued to plan participants (but did not file with the Department of Labor) an "Insert and Summary of Material Modification" to replace the above quoted "Subrogation" subsection. This modification, titled "Subrogation and Reimbursement Provisions," stated in pertinent part:

The Plan has subrogation and reimbursement provisions which allow the Plan to recover for benefits it pays which are duplicated from another source. The Plan provides an automatic lien on any funds subject to reimbursement or subrogation.

Reimbursement gives the Plan the right to collect from you money that you receive in a settlement or lawsuit that covers expenses that the Plan has already paid for....

Reimbursement Example--You are injured and receive $1,000 in covered expenses from the Plan. The person who caused your injury agrees to settle with you and pays you the $1,000. The Sunbeam-Oster Plan has a legal right to reimbursement from you of the $1,000.

This provision essentially reiterates the general reimbursement right described in the original SPD's "Subrogation" section but expands it by removing the previous version's limitation on the Plan's right to subrogation and reimbursement from the proceeds recovered by the participant or beneficiary from individually purchased insurance coverage--a matter not at issue here.

Two or three months after the accident but before any medical bills had been paid, Blue Cross sent Whitehurst a standard form that inquired about, inter alia, the possibility of recovering the Plan's medical expenses from a third party tortfeasor. ⁶ Whitehurst completed most sections of the form, signed it, and returned it to Blue Cross; however, he left unsigned the reimbursement/subrogation section of the form. That section provided:

I request that payment of benefits be advanced and in consideration of such payment I agree that should any recovery be obtained by me from the responsible person(s) or from his insurer(s), I will reimburse Blue Cross & Blue Shield of Mississippi, Inc., the total amount of benefits provided by it up to the amount of my recovery.

The next month, while Whitehurst was convalescing at home and undergoing out-patient treatment at a rehabilitation facility, Blue Cross wrote to him, enclosed another copy of the same form, and advised him that his failure to sign and return the reimbursement/subrogation portion of the form would be interpreted by Blue Cross as signifying that his medical bills would be paid by or from some other source. About a week after Whitehurst received this second copy of the form--and without comment, question, or objection--he signed the reimbursement/subrogation The particular Blue Cross form, copies of which Whitehurst signed, had not been specifically tailored for use with the plan. Rather it was a generic document then being used widely and routinely by Blue Cross for many plans that it served in the same or similar administrative capacities.

section and returned the form to Blue Cross. A short while later the Plan began paying his medical bills.

The Plan's amicable efforts to obtain reimbursement from the Whitehursts after they had settled their lawsuit proved fruitless, so suit was filed against Leonard Whitehurst individually seeking (1) reimbursement of the medical benefits that the Plan had paid on his behalf, (2) a credit or offset for future medical expenses that...